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Greenville, South Carolina (October 27, 2004) - KEMET Corporation
NYSE:KEM) today reported financial results for the quarter ended
September 30, 2004. Net sales for the quarter were $106.0 million and
net loss before special charges was $16.7 million, or $0.19 per
diluted share. Comparisons to prior periods are as follows:
<Table>
<Caption>
Quarter Ended
- ---------------
Sep 2004
Jun 2004
Sep 2003
- --------
- --------
- --------
(In Millions, Except Per Share Data)
Net Sales
$ 106.0
$ 122.4
$ 100.1
Before special charges (non-GAAP)
Net income (loss)
(16.7)
0.7
(13.3)
Net income (loss) per diluted share
(0.19)
0.01
(0.15)
Special after-tax charges
9.2
(2.6)
(30.0)
Special after-tax charges per diluted share
0.10
(0.03)
(0.35)
After special charges (GAAP)
Net income (loss)
(7.5)
(1.9)
(43.3)
Net income (loss) per diluted share
$ (0.09)
$ (0.02)
$ (0.50)
</Table>
"Over the course of the summer and continuing into the fall, KEMET has
been negatively impacted by an inventory cycle in our industry,
especially at our distribution customers which represent approximately
one half of our revenue," stated Dr. Jeffrey Graves, Chief Executive
Officer. "Based on the best information we have from customers, we do
not believe this represents a prolonged slump in our industry, but the
inventory correction has continued into the December 2004 quarter,
which we anticipate will be flat in terms of revenue with the
September 2004 quarter."
"The KEMET team is continuing to work to position the company for
success. Initiatives to broaden our product portfolio to leverage our
Easy-To-Buy-From infrastructure continue. Our program to move
virtually all of our commodity production to low cost regions by mid
2005 remains on track. In addition to this, we are announcing
additional cost cutting measures to reduce our workforce by
approximately 820 employees worldwide, or approximately 10%, which
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will result in one-time charges of $5.5 million in the December 2004
quarter and annualize savings of $11.1 million."
"Despite this challenging environment, electronics remains a growth
industry long-term, and with an experienced management team and a
strong balance sheet, I remain confident in KEMET's future."
As of September 30, 2004, KEMET had $237 million in cash and short and
long-term investments in marketable securities, $100 million in long-
term debt, and $677 million in stockholders' equity.
The company will hold a conference call at 8:30 am ET Tuesday, October
26, 2004, to discuss the earnings release. The call will last
approximately one hour, and after an initial presentation, questions
will be taken as time permits. To access the call, participants in the
United States should dial 1-800-416-8033, and participants outside the
United States should dial 1-706-643-0979. Participants should
reference "KEMET Corporation" and the Conference ID #: 1149917. An
archived replay of the conference call will be available through
midnight on November 9, 2004, by calling 1-800-642-1687 inside the
United States, and 1-706-645-9291 internationally, and referencing the
Conference ID #: 1149917.
KEMET's common stock is listed on The New York Stock Exchange under
the symbol KEM. At the Investor Relations portion of the company's web
site at http://www.KEMET.com/IR, users can subscribe to KEMET news
releases and can find additional company information.
BUSINESS OUTLOOK
The following statements are based on current expectations. These
statements are forward-looking, and actual results may differ
materially. Current global economic conditions make it particularly
difficult at present to predict product demand and other related
matters.
Sales of surface-mount capacitors were 82%, and sales of leaded
parts were 18% of total sales for the September 2004 quarter.
By region, 46% percent of total sales for the September 2004
quarter was to customers in North America, 34% was to Asia, 19%
was to Europe, and 1% was to the rest of the world.
By channel, 50% percent of total sales for the September 2004 quarter
were to distribution customers, 27% were to Electronic Manufacturing
Services customers, and 23% were to Original Equipment Manufacturing
customers. In the June 2004 quarter, 56% of total sales were to
distribution customers, and the reduction
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in the September quarter is primarily the result of a reduction
in inventory levels by our distribution customers.
Average selling prices for the September 2004 quarter, adjusted
for changes in product mix, declined by 8% compared to average
selling prices for the June 2004 quarter. A significant portion
of this price decline is due to the changes in the mix of sales
channels during the quarter. Pricing is lowest in our Electronic
Manufacturing Services channel, and average selling prices
declined as sales to Electronic Manufacturing Services customers
became a greater percentage of our business due to the correction
of inventory in our Distribution channel.
On July 2, 2003, KEMET announced the reorganization of its
operations around the world, resulting in the location of
virtually all of its commodity production in low cost regions to
be completed by mid 2005. KEMET estimates it will incur special
charges of approximately $35 million over the period of the
reorganization related to movement of manufacturing operations.
When the reorganization is complete, the company estimates this
will yield an approximate one-year payback based on unit volumes
at the time of the announcement, and a $50-60 million savings
with volume recovery by fiscal 2006.
Completed portions of KEMET's announced move of production have
occurred in accordance with the anticipated time line. Charges related
to movement of manufacturing operations in the September 2004, June
2004, March 2004, December 2003, and September 2003 quarters were $2
million, $3 million, $3 million, $10 million and $12 million,
respectively. The balance of the $35 million is expected to be
realized ratably over the next four quarters. The timing of the
special charges is dependent on the timing of operational decisions,
some of which have not been finalized, and on operational activities
yet to occur.
In addition to the cost reduction initiatives above, KEMET is
announcing additional cost reduction plans. The workforce will be
reduced by approximately 820 employees worldwide, or approximately
10%, which will result in one-time charges of $5.5 million in the
December 2004 quarter and annualize savings of $11.1 million. We also
anticipate one-time charges of approximately $20 million in the
December 2004 quarter to reflect the impairment and disposal of
certain assets.
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Summary of special charges (income) in the September 2004 quarter:
<Table>
(In Millions)
Manufacturing relocation
$ 1.7
Pension settlement charges
$ 0.2
Gain on material supply contract
$ (11.1)
Income tax benefit
-
- --------------
Special charges (income) net of taxes
$ (9.2)
==============
</Table>
For fiscal 2005, KEMET anticipates maintaining our investments in
key customer relationships through our direct sales and customer
service professionals, as well as our investments in research and
development, to maintain our competitive position in the
capacitor industry.
<Table>
<Caption>
Fiscal Year Ended
Fiscal Quarter Ended
- --------------------------------------------------
- ---------------------------------------
2000
2001
2002
2003
2004
Dec 2003
Mar 2004
Jun 2004
Sep 2004
- ----
- ----
- ----
- ----
- ----
- --------
- --------
- --------
- --------
(In Millions)
SG&A
$52.7
$55.2
$62.3
$54.4
$51.2
$11.9
$12.8
$12.4
$13.1
R&D
$22.1
$24.9
$27.2
$25.3
$24.4
$ 6.3
$ 6.3
$ 6.7
$ 6.6
</Table>
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Capital expenditures for the September 2004 quarter were $7.3
million.
<Table>
<Caption>
Fiscal Year Ended
Fiscal Quarter Ended
- ----------------------
- --------------------------------
2002
2003
2004
Dec 2003
Mar 2004
Jun 2004
Sep 2004
- ------
- ------
- ------
- ------
- ------
- ------
- ------
(In Millions)
Additions to property, plant and equipment
$ 79
$ 22
$ 26
$ 5
$ 12
$ 9
$ 7
=====
=====
=====
=====
=====
=====
=====
</Table>
During the September 2004 quarter, inventories increased $14
million to $154 million from $140 million at June 30, 2004. Raw
materials and supplies increased $4 million in the September 2004
quarter, and finished goods and work in process increased $10
million.
<Table>
<Caption>
Mar 2001
Mar 2002
Mar 2003
Mar 2004
Dec 2003
Mar 2004
Jun 2004
Sep 2004
- --------
- --------
- --------
- --------
- --------
- --------
- --------
- --------
(In Millions)
Raw materials and supplies
$ 115
$ 118
$ 91
$ 60
$ 65
$ 60
$ 66
$ 70
Work in process and finished goods
149
141
93
69
66
69
74
84
- ------
- ------
- ------
- ------
- ------
- ------
- ------
- ------
$ 264
$ 259
$ 184
$ 129
$ 131
$ 129
$ 140
$ 154
======
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</Table>
Cash and long and short-term investments in marketable securities
during the September 2004 quarter decreased $16 million to $237
million from $253 million at June 30, 2004. Approximately $14 of
this is related to increases in inventory, and most of the rest
is related to capital expenditures during the quarter.
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QUIET PERIOD
Beginning January 1, 2004, KEMET will observe a Quiet Period during
which the Business Outlook as provided in this news release and the
company's quarterly report on Form 10-Q will no longer constitute the
company's current expectations. During the Quiet Period, the Business
Outlook in these documents should be considered to be historical,
applying prior to the Quiet Period only and not subject to update by
the company. During the Quiet Period, KEMET representatives will not
comment concerning the Business Outlook or KEMET's financial results
or expectations. The Quiet Period will extend until the day when
KEMET's next quarterly earnings release is published.
This release contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. We intend that these forward-looking statements be subject to
the safe harbor created by that provision. These forward-looking
statements involve risks and uncertainties and include, but are not
limited to, statements regarding future events and our plans, goals,
and objectives. Our actual results may differ materially from these
statements. These risks, trends, and uncertainties, which in some
instances are beyond our control, include: risks associated with the
cyclical nature of the electronics industry, the requirement to
continue to reduce the cost of our products, the competitiveness of
our industry, an increase in the cost of our raw materials, the
location of several of our plants in Mexico, and the possible loss of
key employees. Although we believe that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions
could prove to be inaccurate. Therefore, we can give no assurance that
the results contemplated in these forward-looking statements will be
realized. The inclusion of this forward-looking information should not
be regarded as a representation by our company or any person that the
future events, plans, or expectations contemplated by our company will
be achieved. Furthermore, past performance in operations and share
price is not necessarily predictive of future performance.
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<Table>
<Caption>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Data)
Unaudited
Three months ended
Six months ended
September 30,
September 30,
- ------------------------------
- ------------------------------
2004
2003
2004
2003
-------------
-------------
- --------------
- --------------
Income Statement Data:
Net Sales
$ 106,022
$ 100,084
$ 228,405
$ 205,446
Cost of goods sold
102,773
112,500
202,896
208,497
Loss on long-term supply contract
(11,139)
12,355
(11,139)
12,355
Selling, general and administrative expenses
13,062
13,030
25,500
26,576
Research and development
6,637
5,907
13,375
11,870
Pension settlement charges
218
-
218
-
Restructuring and impairment charges
1,649
28,549
4,199
28,841
-----------
-----------
-----------
-----------
Operating income (loss)
(7,178)
(72,257)
(6,644)
(82,693)
Interest expense
1,579
1,348
3,202
2,920
Interest income
(1,455)
(886)
(3,365)
(1,646)
Other income
11
(479)
2,296
(1,863)
Income tax expense (benefit)
152
(28,960)
539
(35,253)
-----------
-----------
-----------
-----------
Net (loss)
$ (7,465)
$ (43,280)
$ (9,316)
$ (46,851)
===========
===========
===========
===========
Loss Per Share Data:
Net loss per share:
Basic
$ (0.09)
$ (0.50)
$ (0.11)
$ (0.54)
Diluted
$ (0.09)
$ (0.50)
$ (0.11)
$ (0.54)
Weight-average shares outstanding:
Basic
86,506.738
86,403,086
86,500,694
86,376,086
Diluted
86,506,738
86,403,086
86,500,694
86,376,086
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<Table>
<Caption>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in Thousands)
Unaudited
September 30, 2004
March 31, 2004
-------------
- ------------------
ASSETS
Cash and cash equivalents
$ 30,919
$ 183,528
Short-term investments
23,110
3,172
Accounts receivable, net
57,814
57,303
Inventories
153,955
129,016
Prepaid expenses and other current assets
6,188
6,979
Deferred income taxes
17,156
29,046
- ------------
- ------------
Total current assets
289,142
409,044
Property, plant and equipment, net
407,211
424,161
Long-term investments in marketable securities
183,448
84,584
Investments in affiliates
3,459
3,610
Intangible assets, net
44,486
45,088
Other assets
3,537
3,321
- ------------
- ------------
Total assets
$ 931,283
$ 969,808
============
============
Liabilities and Stockholders' Equity
Accounts payable trade
$ 37,085
$ 38,268
Accrued expenses
36,181
41,182
Income taxes payable
14,507
15,863
- ------------
- ------------
Total current liabilities
87,773
95,313
Long-term debt
100,000
100,000
Other non-current obligations
49,317
61,623
Deferred income taxes
16,863
28,394
- ------------
- ------------
Total liabilities
253,953
285,330
Common stock
879
879
Additional paid-in capital
317,746
317,497
Retained earnings
385,624
394,940
Accumulated other comprehensive (loss)
392
(1,457)
Treasury stock, at cost
(27,311)
(27,381)
- ------------
- ------------
Total stockholders' equity
677,330
684,478
Total liabilities and stockholders' equity
$ 931,283
$ 969,808
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============
</Table>
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